Determined not to allow its economy to deteriorate further, the Chinese central government said it was ready, on Saturday, October 12, to “increase significantly” its use of debt to support local authorities, whose coffers are dry, the property market and the big banks, which will benefit from the recapitalization. “The central government still has enough room to borrow and increase the deficit”said Finance Minister Lan Fo’an during a press conference.
This is the third round of announcements from Chinese authorities in support of the economy in less than three weeks. Since the senior leaders of the Communist Party recognized, on September 24, a few days before the Chinese National Day holiday, the need to “take proactive measures” To help the second largest economy on the planet, state agencies take turns showing what they have to offer.
After the central bank, which lowered its interest rates, and the municipalities, which, one by one, lifted the restrictive measures that existed on the purchase of an apartment to avoid speculation, it is up to the Ministry of Finance to demonstrate that it will do so. put your tools at the service of recovery. It announced that it would dedicate the equivalent of 300 billion euros in bonds to support local governments in the next three months.
cold consumers
The debt limits of cities, cantons and provinces will also be raised to allow them to integrate their large hidden debt, which they have accumulated over the years through external companies so as not to overload their accounts. A very widespread practice at the local level, which has made the level of risk in the Chinese economy illegible. “We will strengthen support for local governments by resolving public debt risks and increasing debt limits on a larger scale”said the minister.
The same local authorities will also be able to issue their own bonds to buy back land from developers in difficulty. With other players suffering from the slowdown, China’s largest state-owned banks will benefit from the recapitalization, which should contribute to their stability and allow them to help the economy. The figure has not been announced, but according to the Bloomberg agency, the amount could amount to the equivalent of 1,000 million yuan (129,000 million euros).
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